Caribbean & Central America - June 2022

Nicaragua’s President Daniel Ortega has boosted ties with Iran and China in recent months as the US steps up efforts to punish his government for its attacks on civil liberties and dismantling of democratic institutions.

At the beginning of May, Iran’s oil minister Javad Owji visited Nicaragua and reportedly signed a Memorandum of Understanding and contracts in the areas of oil and agriculture, the details of which at the time were not made public. On 6 May, Owji said that Iran will make its “best efforts to guarantee the supply of fuel” to Nicaragua, according to local media outlet Confidencial, although he did not specify quantities or conditions of the agreement. In addition, he floated the possibility of Iran investing in Nicaragua’s Supremo Sueño de Bolívar oil refinery, a mega-project first agreed with Venezuela’s late president Hugo Chávez (1999-2013) in 2007 which has yet to materialise. After looking into documentation related to the refinery, “we will decide on the participation of our country in the continuation of this project,” said Owji. “We will do our best to be able to participate in that refinery and in future refineries in the country,” he added. “We hope that a mixed, shared investment from Iran, Nicaragua, and Venezuela can be made to complete the refinery.” 

This is the second high-level visit by an Iranian delegation since Ortega took office for another term in January 2022 following elections widely condemned as a sham. Iran was one of just a few countries to recognise Ortega’s victory, reflecting the fact that its government has been an ally of the Nicaraguan president since he took power in 2007. However, despite many promises, little of note has come of the relationship. In 2007 the two sides agreed to cooperate on various projects, including the construction of a deep-water port on the Caribbean coast, but only a health centre in Villa Libertad, a neighbourhood in Managua, was actually delivered, reports Confidencial on 24 May.

One of the proposals to come out of Owji’s visit involved trading Iranian fuel for Nicaraguan products, but experts are sceptical. Economist and former legislator Enrique Sáenz told Confidencial that this kind of deal isn’t viable due to the huge distance which separates the countries, and lack of an existing trade relationship.

China is another nation which has deepened ties with Nicaragua of late, even sending a special envoy to attend Ortega’s inauguration. The visit followed Nicaragua’s December 2021 decision to establish diplomatic ties with China and sever relations with Taiwan. Since then, bilateral ties have deepened, and on 28 April the Ortega government announced that China would provide US$60m in funding for the housing sector. The agreement was signed off by chairman of the China International Development Cooperation Agency (CIDCA), Luo Zhaohui, and Nicaragua’s finance minister, Iván Acosta. The Nicaraguan government cited Luo as saying that the CIDCA, which is a government agency, had held four meetings with Nicaraguan officials and reached agreements on four important areas: housing; anti-epidemic materials; vaccines against the coronavirus (Covid-19); and human resource training. China does have the financial muscle to help Nicaragua, but relations have only just been kickstarted once more, and the US remains Nicaragua’s largest trading partner by far.

Unfortunately for Ortega, it appears that Washington has moved to increase pressure on his administration. For example, on 15 April the Office of the US Trade Representative (USTR) excluded Nicaragua from the reallocation of the unused country-specific quota allocations under the tariff-rate quota (TRQ) on imported raw cane sugar. These reallocations are normally interpreted as a political message. Critics say that the move will not affect Ortega’s government unduly, as it doesn’t make much money from cane sugar, which is dominated by private producers. Nonetheless, it marks a new stage in US pressure on Ortega, and it appears that financial sanctions targeting the Ortega family and key aides, which started in 2018, may be starting to bite.

Indeed, an article by the New York Times (NYT), published on 5 May, suggests that Ortega is sufficiently concerned that he authorised his son to approach US officials in order to reopen dialogue. Laureano Ortega, the dynasty’s most prominent son, reportedly made contact with Washington after Russia invaded Ukraine in late February. A US diplomat reportedly travelled to Managua for a meeting, but the Ortegas allegedly pulled out.

The reported development could indicate Ortega’s worries for the future after Western sanctions on Russia started to affect another of his few remaining allies. “A key takeaway from this outreach is that the US sanctions on Nicaragua clearly have the family’s attention,’’ Dan Restrepo, a former national security adviser on Latin America under former US president Barack Obama (2009-2017), told NYT in the same article. “Probably even more so as the US ramps up its sanctions regime against Russia. That combination is clearly hitting pretty hard when it comes to regime insiders.” With Ortega relying on a steady flow of cash to bolster support among the groups that maintain his grip on power, it stands to reason that money worries may prompt reengagement with the US.

• Trade deal with China?

On 6 June Nicaragua’s minister for development, business and industry (Mific), Jesús Bermúdez, announced that Nicaragua and China had outlined a trade deal, which comprises two parts, the first of which will take effect this year. According to Nicaragua’s state mouthpiece, el19Digital, the first part of the agreement, which could be signed as early as this month, seeks to cover 90% of products that Nicaragua had previously exported to Taiwan, with which Nicaragua severed ties in December 2021 as part of a move to establish relations with Beijing. The second part of the deal is a free trade agreement (FTA). Bermúdez says that the framework for negotiations has already been established and hopes that the FTA can be finalised within a year and a half.

• Financing uncertainty

In a report published on 7 June, international credit ratings agency Fitch notes that US sanctions and the deteriorating governance backdrop have not precluded Nicaragua from securing record-large support from multilaterals in 2020 and 2021, although large disbursements from the International Monetary Fund and World Bank were due to extraordinary circumstances, including the coronavirus (Covid-19) pandemic and hurricanes. Fitch highlights that external funding has become increasingly reliant on the Central American development bank (BCIE) which represented 55% of net external financing in 2021, up from 28% in the prior decade.